German business confidence soars to record high in November

Business confidence in Germany surged to record highs in November, despite sovereign debt woes in Ireland and fears of a contagion to other euro zone members.

The Ifo Institute of Munich said its business-climate index climbed to 109.3 in November (well above economists’ forecasts for a 107.6 reading) from a revised figure of 107.7 in October.

The index has now risen for six consecutive months.

The Ifo data comes on the heels of yesterday’s encouraging rise in German composite PMI yesterday.
The Ifo institute’s business-expectations gauge rose to 106.3 from 105.2 in October, while the current-conditions index rose to 112.3 from 110.2.

“The upswing in the German economy is gaining more and more strength,” said Hans-Werner Sinn, president of the Ifo Institute, in a statement.

The DAX stock index of Germany is up about 1.33 percent in this morning’s trading, although the euro is down a bit on the U.S. dollar.

The firms are clearly more satisfied with their business situation than in October, the Ifo added.

In addition, the survey participants anticipate a favorable development in the near term, their expectations for business in the coming six months having risen.”

Jennifer McKeown, senior European economist at Capital Economics in London, said the Ifo data suggests that while the euro-zone’s periphery remains mired in economic gloom, strong German growth is continuing to support the recovery in the region as a whole for now.

However, McKeown cautions that the resilience of Germany’s export is unlikely to last, even if the euro weakens further.

“German exports -- and business sentiment -- have responded strongly to changes in world demand in the past and our global forecasts point to a very sharp slowdown o come,” she noted. “German exporters cannot rely on Asian demand alone.”

She also warned that fiscal tightening as well as the bailouts of weaker euro zone members are likely to eventually dampen business and consumer sentiment in Germany.

Nonetheless, for the very near-term at least, she expects the German economy to keep supporting the euro-zone recovery/ She forecasts German GDP expanding by about 3.5 percent this year before growth slows to about 1.5 percent in 2011.